Here’s how ISPs might react to Biden’s effort to scrap ‘junk fees’

President Joe Biden called on Congress during his State of the Union address to pass legislation which would prevent operators from levying so-called “junk fees.” That’s unlikely to actually happen, but similar ideas could be adopted at the state level and operators will be left looking for new ways to pass on costs to consumers.

The details of the Junk Fee Prevention Act Biden proposed are unclear, as it appears a draft of the bill has yet to be released. However, Dan Hays, the technology and telco strategy and policy leader at consulting firm PricewaterhouseCoopers (PwC), told Fierce operators can expect “increased pressure” on all sorts of fees, whether they’re related to activation and installation, regulatory compliance or technology investments.

Early termination fees – which can cost customers hundreds of dollars when they cancel their service before the end of a contract period – appear to be a particular target. While they have a bad reputation among consumers, Hays said these charges aren’t a pointless money grab. Instead, they’re designed to help operators recoup “costly investments in upfront subscriber acquisition, equipment subsidies, installation and activation from subscribers who terminate service before such investments can be fully recovered.”

If Congress or state lawmakers pass legislation banning these or other ISP fees, upfront costs for consumers are likely to go up, he added.

“Operators may need to restructure their investments into more financially-oriented mechanisms in the future,” he explained. So, “instead of subsidizing equipment and installation costs at the start of service contracts, we could see service providers choose to either require upfront cash payments, expand the use of installment payment or lease plans, or even begin issuing the equivalent of small bank loans to customers in order to ensure that all costs are eventually recovered.”

New Street Research’s Blair Levin indicated in a note to investors earlier this month Congressional action on junk fees is “unlikely.” However, he noted some states “might pick up on the idea, raising preemption issues we have seen in other contexts but also creating a loop in which the idea eventually returns to the national forum.” Levin also pointed out the Federal Trade Commission (FTC) initiated a proceeding in October aimed at tackling such fees.

In a letter sent to the FTC shortly after Biden’s speech, 42 national and state consumer groups urged the agency to act to regulate junk fees.

“In essence, junk fees harm competition by distorting markets and by preventing the direct price comparisons on which market competition relies,” they wrote. “Any final rule should have the effect of ending the imposition of true junk fees – those that add little or no value to the consumer, or which the consumer reasonably believes would be included in the price.”